In Cyprus, real estate returns (yields) are very low by comparison to other European countries and with a special regard to housing, the returns do not exceed 3% (i.e. the income p.a. in relation to the property’s value). With relation to commercial and industrial properties, the returns are higher, around 4½ %-6½% p.a. These returns however were attractive during the boom period, since in addition to the annual income (yield) we were experiencing a healthy capital appreciation per year which ranged from 8%-12% p.a., increasing thus the total return on one’s investment. With the prevailing circumstances however of depressed real estate demand and with reducing values, the returns have reached rock bottom. For own housing, the returns are not a primary consideration since the major consideration is own use and not necessarily the returns. As we have a say in Cyprus (“the wife, the car and your home is not a good investment – a sexist country we add!!”). With the Bank deposit rates at 4%, but with no management expenses and a “guaranteed” income and with no appreciation of property values, this level is now attractive when compared with real estate returns. What has emerged recently, investment funds and investors in general in real estate are now seeking a 6%-7% return and this provided the property is “prime” and let to long term tenants, who have a record of payment of rent on time and with the least problems in terms of landlord and tenant relationship. So at this point of time buildings of a commercial/office nature are much in demand, especially those which are let to Banks and semi/Governmental bodies and large corporations. The return is quite high, especially when considering that most rental agreements have an 8%-10% two yearly rental increases (as opposed to a 2.6% inflation rate, thus giving in addition an increase in real income returns). The opportunities that are in the market have been sought by investment and provident funds of the likes of Cyta Corporation, the Builders and Hotel provident fund etc etc.

The name of the game now on part of the sellers is cashflow. So in an effort to promote this type of property, developers and others even if they do not have a tenant, they guarantee a return per year of 6%. To the investment (income) game the foreign investors (cash for permanent residency and cash for passports) are taking an increasing role. A recent Arab client has acquired a Chinese restaurant with an annual return (guaranteed by the developer) of 6% and another investment group has secured a 6.5% return on an office building (both deals around €3.0 mil. each). Surely owners of property with such returns are not eager to sell, but, as we have said, if they are in need of cash, this is one way forward. A recent complex of restaurants for sale at the Protaras beach is expected to come to the market shortly, as is a bakery factory producing a 6½% return (sale and lease back) and with a Bank Guarantee for 5-7 years.

The situation might change of course since inflation (Europeanwise) is on the up and interest rates seem to have an increase future. All the rescue money that have been invested by the Governments by all countries will produce inflationary pressures, which might be checked if the Governments manage to get back their initial rescue package, but if not the problem will be there.

As a projection of this nature of sale, is the new scheme that has been produced by some developers, but on an individual basis. The sales price is agreed and the buyer is allowed to rent the property (at market rate) for a period of 2 years, at the end of which the prospective buyer/tenant has the right to buy at the agreed price less the rent paid during the lease period. This increases the possibility of the developer to secure a possible future sale and it gives at the same time the opportunity to the property buyer, to move in with an agreed rent and a fixed future purchase price (caution on the V.A.T. complications however).

Real estate is in some trouble and new ideas to promote sales are most welcomed. A recent add that “buy a home you get a car free” is an old sale gimmick which was tested in the U.K., repeated by us during the S-300 missile period and which did not particularly worked. Real estate employees are afraid in terms of work security. Usually a country has first the manufacturing industry, but if these workers are affected and they cannot find a job, they turn to the building industry which uses mostly unskilled and older labour force, not knowing basic English (let alone “polite” Greek!!). But if the building industry is in trouble where are these people going to go? The negative results of the building industry have affected mainly the Pontiac Greek and T. Cypriots (who by admission are the best builders in terms of local population). For this reason and notwithstanding the fact that we have only 6% unemployed, as opposed to the Spanish industry, which, something like 20%, the percentage of unemployed builders is almost 12%. Unemployment has not only the human side of things (people with no income tend to turn to crime, narcotics increase, prostitution etc) but if legal workers lose their jobs, this means millions of euros in terms of unemployment hands out, which, the rest, fortunate workforce are called to pay. The Cypriot economy depends on tourism (80.000 workers) and the building industry (40.000 workers). The remaining industry of Cyprus (e.g. offshores, legal etc) are by majority white collar workers, who, being educated can be diversified easier.

We on our part feel very sympathetic for the younger educated generation, who find many difficulties in finding a job of their own skill. Hotel management degrees are in abundance and this classification of people have a hard time to become anything else other than hotel managers. The various measures that have been undertaken by this Government (subsidizing their salary for 6-12 months) comes at a cost but it makes employment for them much easier. We need a complete change of the Cypriots attitude on employment and the recent measures (in contradiction to the above) to reduce the touristic hours level, the increases the minimum salary is a direction in the wrong way. The handouts given to all (being wealthy or not) is another non-coherent direction.

A confused economy indeed and notwithstanding the fact that we very rarely ask for God’s help in our articles, now, we feel is the time, being the Easter period to ask him to help our leaders in politics to enlighten them on the subject.

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